RNS Number:0810J
Renova Energy plc
04 December 2007
For immediate release
4 December 2007
Renova Energy plc
Interim results for the 6 months ended 30 September 2007
Renova Energy plc (AIM:RVA), the integrated ethanol production, distribution and
marketing company, today announces its results for the six months ended 30
September 2007.
Operational Highlights
* 21 MMgal/y plant in Heyburn, Idaho, 60% complete with start-up scheduled for
this financial year - 5% increase in design capacity;
* 3.2 MW integrated waste-to-energy plant at Heyburn 95% complete with 1.0 MW
surplus capacity for external power sales;
* Key management positions at Heyburn filled;
* 54% increase in sales volumes to 6.0 MMgal (2006: 3.9 MMgal);
* 42% increase in production to 3.4 MMgal (2006: 2.4 MMgal);
* 210% increase in distribution capacity on-line or awaiting development; and
* Acquisition of waste-to-energy project development business.
Financial Highlights
* 39% increase in turnover to $15.4 million (2006: $11.1 million);
* 9% decrease in average ethanol price to $2.37/gal (2006: $2.60/gal);
* 4% decrease in underlying EBITDA from US operations to $2.3 million
(2006: $2.4 million);
* Loss after taxation of $0.1 million (2006: profit $0.8 million); and
* 90% increase in cash generated from operations to $1.9 million
(2006: $1.0 million).
Commenting on this, Chris Thomas, Chairman, said:
"Renova continues to position itself for the expansion of its production and
distribution capabilities and we are pleased to see a significant improvement in
underlying operational profitability and cashflow since the second half of 2006/
7 with strong headline year-on-year sales growth.
We are now close to achieving the next significant milestone for Renova with the
Heyburn facility scheduled for start-up before the end of this financial year.
This will provide a broader production base from which to continue to grow our
marketing and distribution business."
For further information please contact
Renova Energy
Chris Thomas, Chairman +44 207 299 4444
Fanton Chuck, Chief Executive Officer +44 207 299 4444
Raf Alam, Finance Director +44 207 299 4444
Brewin Dolphin
Jamie Cumming/Ken Fleming +44 141 221 7733
Buchanan Communications
Ben Willey +44 207 466 5000
or visit www.renovaenergy.com
Interim statement for the 6 months ended 30 September 2007
Chairman's statement
Renova's focus over the last six months, in what is a rapidly evolving industry
landscape, has been on completing our new integrated ethanol and waste-to-energy
facility in Heyburn, Idaho, and the ongoing expansion of our marketing business
and its associated distribution infrastructure.
Marketing and distribution
In the six month period to 30 September 2007 we achieved year-on-year sales
volume growth of 54% compared to the corresponding period last year with total
sales of 6.0 MMgal (2006: 3.9 MMgal). This growth has been achieved through the
new markets we entered since our IPO and which continue to offer significant
growth potential.
Our marketing effort has concentrated on expanding the reach of our distribution
network and developing our customer base; we have continued to be successful in
this objective. We have secured a new site in Utah, which is strategically
located close to the refineries in the Salt Lake City area and will open up
another potentially significant market for us. We now have 16 distribution
terminal locations across six states in the western regions of the US, of which
14 are currently operational and two are awaiting development. Once all these
sites are operational we will have distribution capability of approximately 100
MMgal/y and our search for appropriate sites and marketing opportunities
continues.
Production
Construction of the new ethanol facility at Heyburn, Idaho, is now approximately
60% completed, with start-up scheduled through February and March 2008. Some
scope modifications since the initial design have resulted in a 5% increase in
guaranteed capacity to 21 MMgal/y of fuel-grade ethanol and a similar increase
in total project costs.
Construction of the waste-to-energy plant that is an integral component of this
ethanol facility is 95% complete. Preparations are already underway to start
bio-mass feed in January 2008 with the reactors currently being heated to
operating temperature. The specifications of this plant have also been upgraded
and it will now be capable of producing 3.2 MW of electricity, compared to the
2.2 MW requirement of the ethanol facility. We are negotiating a power sale
agreement with a utility company to sell this surplus "green tag" electricity
into the local grid. This has the potential to provide a significant and secure
long term income stream, further improving the economics of this unique
facility.
Hiring of key personnel for the Heyburn operation has been completed with the
General Manager and the Production, Maintenance and Finance Managers all in situ
and the Laboratory Manager due to commence in January 2008.
Production from our plant in Torrington, Wyoming, increased by 42% to 3.4 MMgal
(2006: 2.4 MMgal) despite downtime as a result of the ongoing remedial programme
to increase plant output to in excess of 10 MMgal/y. Plans involving process
modifications as well as replacement of sub-optimal equipment have been
completed and installation has begun, but long delivery lead times on some
equipment have pushed the estimated completion date out to March 2008.
Waste-to-energy projects
Our blueprint for future ethanol plant designs includes the concept of energy
self-sufficiency that we have incorporated into the Heyburn plant to control
production cost volatility. Heyburn's location has unique features which allowed
co-located energy and ethanol plants. Accepting that we may not always have
these advantages at future plant locations, we will also consider separately
located energy and ethanol plants. In line with this strategy we have agreed
terms to acquire the assets and core management of Hyperion Energy LLC, a
waste-to-energy project development and management business for an initial
consideration of US$300,000 payable in shares, increasing to a maximum
consideration of $2.0 million over the next five years dependent upon future
earnings of this business. Hyperion has the expertise to develop waste-to-energy
plants both for integration with Renova's ethanol plants, but also as
stand-alone power plants using a variety of bio-mass feedstocks. We are now
investigating the feasibility of incorporating a waste-to-energy plant at the
Torrington facility.
Financial results for the six months ended 30 September 2007
Turnover increased by 39% to $15.4 million (2006: $11.1 million). Ethanol sales
volumes increased by 54%, to 6.0MMgal (2006: 3.9MMgal). However, increased
volume revenue was offset by a 9% fall in average prices to $2.37/gal (2006:
$2.60/gal). Revenue from by-product sales more than doubled to $1.2 million
(2006: $0.5 million) equivalent to $0.34/gal of ethanol produced (2006: $0.23/
gal).
Cost of sales increased by 58% to $13.3 million (2006: $8.4 million) due
principally to a combination of higher corn costs, a higher depreciation charge
and increased volumes of ethanol purchased for resale. The Commodity Spread,
which is a key measure for ethanol production economics and is measured as the
difference between realised ethanol prices and the net cost of corn (after
taking into account by-product revenues), decreased by 23% to $1.51/gal (2006:
$1.96/gal). Marketing margins on product purchased for resale were higher than
our targeted margins. The net impact of this increase in volumes and the reduced
Commodity Spread was an overall increase in gross profit (before depreciation)
of 6% to $3.3 million (2006: $3.1 million). Included within cost of sales is
depreciation which increased to $1.2 million (2006: $0.4 million) following
commissioning of the enlarged facility at Torrington in September 2006.
General and administrative expenses increased by 60% to $2.4 million (2006: $1.5
million) principally due to higher payroll costs from the increased headcount
ahead of the Heyburn plant commencing operation. General and administrative
costs include $0.3 million attributable to pre-start up costs associated with
the Heyburn operation.
EBITDA reconciliation
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2007 2006 2007
unaudited unaudited unaudited
$m $m $m
EBITDA - US trading operations 2.3 2.4 3.5
Heyburn pre-start up costs (0.3) - -
Group overheads (1.0) (0.7) (1.8)
Group EBITDA 1.0 1.7 1.7
Depreciation and amortisation (1.3) (0.5) (1.3)
Operating (loss)/profit (0.3) 1.2 0.4
EBITDA from current US operations (excluding new plant pre-start up costs) was
$2.3 million compared to $2.4 million in the corresponding period last year.
Group EBITDA decreased to $1.0 million (2006: $1.7 million). The Group recorded
a loss after taxation of $0.1 million compared to a loss of $0.3 million in the
second half of 2006/7 and a profit of $0.8 million in the corresponding period
in 2006/7.
Net cash generated from operations increased 90% to $1.9 million (2006: $1.0
million). Purchase of property, plant and equipment, principally on the Heyburn
facility, amounted to $20.2 million (2006: $4.5 million).
Key operating indicators
------------------- ----------- ----------- -----------
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2007 2006 2007
------------------- ----------- ----------- -----------
Total sales volumes (MMgal) 6.0 3.9 10.5
Sales of purchased ethanol (MMgal) 2.8 1.8 4.2
Production (MMgal) 3.4 2.4 6.5
Realised ethanol prices ($/gal) 2.37 2.60 2.22
Grain cost ($/bu) 3.38 2.47 2.58
Natural gas cost ($/gal) 0.19 0.28 0.22
Commodity Spread ($/gal) 1.51 1.96 1.56
------------------- ----------- ----------- -----------
Dividend
It is the Group's policy to maximise the distribution of free cashflow to
shareholders and, historically, we have paid dividends in September (final) and
December (interim) annually. In view of the significant capital investment
programme that is currently in progress at the Heyburn and Torrington plants and
continuing investment in our distribution network, we are not proposing to pay
an interim dividend for the 2007/8 financial year. Dependent upon the outcome
for the second half of this financial year (and as more fully commented on below
under "Current trading and prospects"), we expect to pay a full year dividend
for the current financial year in line with last year's full dividend.
Current trading and prospects
The US ethanol industry has been expanding aggressively over the last two years
with production capacity now standing at 7.0 Bgal/y and with a further 6.0
Bgal/y reportedly under construction. This rapid expansion has resulted in a
shift in market dynamics. Ethanol supply now exceeds the mandated ethanol
blending requirements of the Renewable Fuel Standard, a psychologically
significant threshold, whilst fuel regulations in some of the largest markets
across the US are also preventing widespread blending of ethanol with regular
gasoline. There are ongoing legislative efforts at both the federal government
and at the state level to address these issues but, in the meantime, the
theoretical supply and demand imbalance has had a significant impact on ethanol
prices in recent months with quoted prices now trading at a discount to gasoline
prices. This inverted price relationship will further encourage voluntary
blending outside of normal oxygenate mandates with ethanol being used more
widely as a low cost voluntary blend component in conventional gasoline. There
is increasing evidence of this and ethanol prices have strengthened recently.
The US Department of Agriculture has forecast a record corn harvest in the US
this year of 13.1 billion bushels, but despite this projection and a very
significant inventory carryover from last year's harvest, corn prices are still
around $4.00/bu and futures prices through 2008 remain at these levels. The
combination of lower ethanol prices and higher corn costs has adversely affected
ethanol production margins.
These are the headlines that are grabbing financial market and media attention
and have, inevitably, had an impact on investor sentiment across the entire
sector. Of course, we are not immune from these macro-economic influences and
our average ethanol price trended downwards to $2.13/gal in November 2007 from
$ 2.23/gal in September 2007, but it is in this environment that the true worth
of our business model becomes more evident. Our distribution system enables our
customers to break through some of the infrastructure barriers that exist
elsewhere in the US, and thereby allows Renova to provide value-added services
to our customers. Our deliberate proximity and access to gasoline and cattle
feed markets means that Renova's realised Commodity Spread and "netback"
revenues (after transportation costs) compare favourably with our peer group.
On the production cost side of the equation, all our corn requirements for the
Torrington facility for the remainder of this financial year are already
contracted at an average price of $3.35/bu, compared to the average cost in the
first half of this financial year of $3.38/bu, so the higher corn prices are
unlikely to impact adversely on production margins for the remainder of this
financial year. Looking a little further into the future, the integrated
waste-to-energy and ethanol facility at Heyburn will have a fundamentally
different production economic profile with the potential for positive net energy
generation (and income) to balance against higher feedstock costs.
In addition to the commodity price drivers that always influence our financial
performance, in the short term it is also highly leveraged to the start-up of
the Heyburn plant and to completion of the Torrington de-bottlenecking. We
expect both events to occur before the end of this financial year, but factors,
which are beyond our control (including weather delays to construction work),
could ultimately still impact on these project schedules.
Popular sentiments have turned against the industry with high profile media
campaigns questioning the renewable nature, ethics and even the morality of
ethanol. Despite this, we continue to see a place for ethanol and biofuels in
the gradually widening transportation fuel pool, especially in addressing
regenerative rather than depleting sources. We remain confident about our
business model and strategy and we will continue to use best judgement to manage
the growth of our business in a socially and environmentally responsible way.
The Heyburn plant is a clear manifestation of this approach.
Since our IPO in June 2005, our strategy has been to leverage and expand our
distribution network, with advantageously located production facilities close to
end user gasoline and cattle feed markets and to minimise volatility through
operational means. We are now close to the next milestone in executing this
strategy. The Heyburn energy and ethanol plants are scheduled to commence
production before the end of this financial year so we expect to be exiting this
financial year with annual production capacity in excess of 30 MMgal/y. This
will provide a stronger and enlarged base from which to continue to grow our
business. Extending our capability and knowledge in waste-to-energy through the
Hyperion acquisition is another important step in executing our strategy.
Lengthened construction schedules and higher build costs for new projects have
led us to prioritise the search for acquisition opportunities over new build
projects. The recent rapid expansion in the ethanol industry, which is now
divided between the very large integrated producer-marketer and the independent
producers, coupled with the current economic environment, is likely to present
some interesting opportunities in this respect.
Condensed consolidated income statement Six months Six months Year
Six months ended 30 September 2007 ended ended ended
30 September 30 September 31 March
2007 2006 2007
unaudited unaudited unaudited
US$'000 US$'000 US$'000
Revenue 15,397 11,067 25,118
Cost of sales (13,335) (8,361) (21,278)
Gross profit 2,062 2,706 3,840
Administrative expenses (2,380) (1,459) (3,456)
Operating (loss)/profit (318) 1,247 384
Analysed as:
Earnings before interest,
tax, depreciation and
amortisation 974 1,693 1,646
Depreciation of property,
plant and equipment (1,213) (407) (1,165)
Amortisation of intangibles (79) (39) (97)
Operating (loss)/profit (318) 1,247 384
Finance income 112 23 318
Finance cost (331) (103) (525)
(Loss)/profit before taxation (537) 1,167 177
Income tax 470 (378) 281
(Loss)/profit for the
financial period (67) 789 458
Earnings per share
Basic (cents) (0.21) 2.86 1.53
Diluted (cents) (0.21) 2.76 1.49
The Group's results all relate to continuing activities.
Condensed consolidated statement Six months Six months Year
of recognised income and expenses ended ended ended
Six months ended 30 September 2007 30 September 30 September 31 March
2007 2006 2007
unaudited unaudited unaudited
US$'000 US$'000 US$'000
(Loss)/profit for the financial period (67) 789 458
Exchange differences on translation of
foreign operations (55) (22) 179
Total recognised income and expenses (122) 767 637
Condensed consolidated cash flow statement Six Six Year
At 30 September 2007 months months ended
ended ended 31
30 September 30 September March
2007 2006 2007
unaudited unaudited unaudited
US$'000 US$'000 US$'000
Cash flow from operating activities
(Loss)/profit for the period (67) 789 458
Adjustments for:
Depreciation of property, plant and
equipment 1,213 407 1,165
Amortisation of intangibles 79 39 97
Equity-settled share-based payment 2 12 20
Finance income (112) (23) (318)
Finance cost 331 103 525
Income tax (470) 378 (281)
Operating cash inflow before changes
in working capital 976 1,705 1,666
Decrease/(increase) in inventories 462 (441) (1,155)
Decrease/(increase) in trade and other
receivables 1,149 (665) (1,559)
(Decrease)/increase in trade and other
payables (663) 361 835
Cash generated from operations 1,924 960 (213)
Income taxes paid - (18) (203)
Net cash from operating activities 1,924 942 (416)
Cash flows from investing activities
Purchase of property, plant and
equipment (20,238) (4,516) (12,050)
Purchase of intangible assets (236) (229) (424)
Purchase of equity investment (900) - -
Interest received 66 23 341
Net cash used in investing activities (21,308) (4,722) (12,133)
Cash flows from financing activities
Proceeds from issue of shares - - 20,064
Share issue costs - - (1,043)
Settlement of employee share options (138) - -
Loan issue costs (1,602) - -
Proceeds from borrowings 17,918 - 2,995
Repayment of borrowings - 2,993 (2,626)
Payment of finance lease liabilities (52) (4) (34)
Interest paid (372) (166) (441)
Dividends paid (327) (282) (608)
Net cash generated in financing
activities 15,427 2,541 18,307
Net (decrease)/increase in cash and
cash equivalents (3,957) (1,239) 5,758
Cash and cash equivalents at start of
period 7,392 1,634 1,634
Cash and cash equivalents at end of
period 3,435 395 7,392
Condensed consolidated At At At
balance sheet 30 September 30 September 31 March
At 30 September 2007 2007 2006 2007
unaudited unaudited unaudited
US$'000 US$'000 US$'000
ASSETS
Non-current assets
Intangible assets 653 379 496
Plant, property and equipment 46,809 19,118 26,746
Equity investment 900 - -
Deferred tax assets 3,642 2,605 3,026
52,004 22,102 30,268
Current assets
Inventories 2,363 2,112 2,826
Trade and other receivables 1,971 2,157 3,093
Cash and cash equivalents 3,435 395 7,392
7,769 4,664 13,311
Total assets 59,773 26,766 43,579
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables 3,543 2,638 3,529
Current taxation 730 507 419
Bank and other borrowings 2,203 826 2,251
6,476 3,971 6,199
Non-current liabilities
Bank and other borrowings 18,532 5,592 1,873
18,532 5,592 1,873
Total liabilities 25,008 9,563 8,072
Equity
Share capital 5,975 5,023 5,971
Share premium account 30,268 12,172 30,245
Merger reserve (2,559) (2,559) (2,559)
Translation reserve (436) (582) (381)
Share option reserve 90 671 410
Retained earnings 1,427 2,478 1,821
Total equity 34,765 17,203 35,507
Total equity and liabilities 59,773 26,766 43,579
Notes to the interim financial information
1. Transition to International Financial Reporting Standards
(IFRS)
From 1 April 2006 the Group has adopted IFRS in the preparation of its
consolidated financial statements. Comparative financial information previously
published under UK Generally Accepted Accounting Principles ("UK GAAP") has been
restated on an IFRS basis for the opening balance sheet as at
1 April 2006 ("the transition date"), the six months ended 30 September 2006 and
the year ended 31 March 2007. An explanation of how the transition from UK GAAP
to IFRS has affected the Group's reported performance will be included in the
unaudited Interim Statement that will be mailed to shareholders shortly and will
also be available on the Company's website (www.renovaenergy.com).
The main impacts of the adoption of IFRS on the Group's results have been:
* to remove the discounting on deferred tax balances; and
* to reverse the amortisation charge on goodwill.
2. Earnings per share
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2007 2006 2007
Unaudited unaudited unaudited
US$'000 US$'000 US$'000
(Loss)/profit for the
period - attributable to
equity shareholders (67) 789 458
Basic earnings per share
(cents) (0.21) 2.86 1.53
Diluted earnings per share
(cents) (0.21) 2.76 1.49
Basic earnings per share has been calculated by dividing the profit for the year
attributable to equity shareholders by the weighted average number of shares in
issue throughout the year; the diluted earnings per ordinary share has been
calculated dividing the profit for the year attributable to equity shareholders
by the weighted average number of shares including the effect of share options
in issue.
The weighted average number of ordinary shares used in the calculation of the
basic and diluted earnings per share for each year was calculated as follows:
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2007 2006 2007
No. of shares No. of shares No. of shares
Issued ordinary shares at
start of period 32,657,757 27,560,360 27,560,360
Shares issued during the
period 19,500 - 5,097,397
Issued ordinary shares at end
of period 32,677,257 27,560,360 32,657,757
Weighted average number of
ordinary shares at end of
period - basic earnings per
share 32,657,974 27,560,360 29,842,587
Effect of share options in
issue 304,386 989,960 959,066
Weighted average number of
ordinary shares at end of
period - diluted earnings per
share 32,962,360 28,550,320 30,801,653
3. Dividend
A final dividend amounting to $327,000 (2006: $282,000) was paid on 27 September
2007, in respect of the financial year ended 31 March 2007.
4. Loan facilities
During the period the Group increased its bank facilities to $40 million,
principally to fund the construction of the Heyburn plant. The facility
comprises a term loan of $37.2 million and a working capital facility of $2.8m.
The term loan is repayable in full by 31 March 2012 with quarterly instalments
repayable from 30 June 2008. As at 30 September 2007 gross bank borrowings
amounted to $22.2 million (31 March 2007: $3.9 million).
5.Post balance sheet event
On 4 October 2007 the Group entered into a 'zero cost interest rate collar' as
required under the terms of its bank loan facilities. The initial notional
amount was for $22 million with a USD 3 month Libor, 'floor' of 4.25% and a 'cap
of 6.25%.
6. Consolidated statement of changes in equity
Share capital Share premium Merger reserve Translation Share option Retained Total equity
account reserve reserve earnings
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 $'000
5,023 12,172 (2,559) (560) 344 1,971 16,391
At 1 April
2006
Exchange
differences on
translation of
foreign
operations - - - (22) - - (22)
Equity-settled
share based
payment
expenses, net
of tax - - - - 327 - 327
Retained
profit for the
period - - - - - 789 789
Dividend paid - - - - - (282) (282)
At 30
September 2006 5,023 12,172 (2,559) (582) 671 2,478 17,203
Shares issued 948 19,116 - - - - 20,064
Share issue
expenses - (1,043) - - - - (1,043)
Exchange
differences on
translation of
foreign
operations - - - 201 - - 201
Equity-settled
share based
payment
expenses, net
of tax - - - - (261) - (261)
Retained loss
for the period - - - - - (331) (331)
Dividend paid - - - - - (326) (326)
At 31 5,971 30,245 (2,559) (381) 410 1,821 35,507
March 2007
Shares issued 4 23 - - - - 27
Exchange
differences on
translation of
foreign
operations - - - (55) - - (55)
Equity-settled
share based
payment
expenses, net
of tax - - - - (320) - (320)
Retained loss
for the period - - - - - (67) (67)
Dividend paid - - - - - (327) (327)
At 30
September 2007 5,975 30,268 (2,559) (436) 90 1,427 34,765
Glossary
AIM Alternative Investment Market, a market operated by the
London Stock Exchange
Bgal billion gallons
Bgal/y billion gallons per year
bu bushel of corn
the Company Renova Energy plc
EBITDA earnings before interest, taxation, depreciation and
amortisation
gal US gallon
gal/d gallons per day
MMgal million gallons
MMgal/y million gallons per year
the Group, Renova Energy the Company and its subsidiaries
or Renova
This information is provided by RNS
The company news service from the London Stock Exchange
END
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